I BELIEVE it was the 1980s hip hop group Salt-n-Pepa who first sang: “Let’s talk about tax baby, let’s talk about you and me. Let’s talk about all the good things and the bad things that may be. Let’s talk about tax.”

The Abbott government has put its focus on reducing spending and we await, with baited breath, the release of a 900 page report of its Commission of Audit.

Should delivering those cuts prove too politically painful, the government’s fall back option another review of the tax system.

Abbott has promised any tax changes will be taken to the Australian people at the next election to get a mandate.

But would you recognise a good tax proposal if you saw it?

The hard truth is that taxes have to come from somewhere.

WOULD YOU ACCEPT A TAX HIJKE? WHERE? COMMENT BELOW

Presently, of the government’s $365 billion in expected revenue this financial year, you and I are by far the biggest donors, chipping in $157 billion in income taxes. Company tax is in second place, with $69 billion, followed by the GST with $50 billion and excise and customs duties with $35 billion (mostly comprising tobacco, alcohol, fuel excises).

Together, these four taxes account for 85 per cent of federal revenue.

But, of course, states levy taxes too. In 2009 the Henry review looked at both state and federal taxes and identified our top ten biggest taxes: personal tax, company tax, GST, payroll tax, fuel excise, local government rates, conveyance stamp duty, superannuation, tobacco excise and land tax. Together these taxes accounted for 90 per cent of total state and federal revenue, with the remaining 10 per cent coming from a grab bag of 115 other taxes includes fringe benefits tax, gambling taxes, insurance taxes, motor vehicle taxes and agricultural levies.

So, that’s the team we have. Is it a good one? Not really. There are too many players on the field, and we make too much use of our underperformers.

So what tax team do we want?

Well, selecting a good tax mix is a bit like assembling a fantasy league for football. You want to make the most of your best players and boot the underperformers off the team.

A tax is a good tax if it raises revenue without distorting behaviour in the economy.

The thing about taxes, is that people will inevitably try to avoid paying them. Just ask the late Kerry Packer who famously said: “Of course I am minimising my tax and if anybody in this

country doesn’t minimise their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra.”

All this tax evasion distorts activity.

If follow that the best things to tax are things that can’t move.

And so my top pick for the fantasy tax league is … drum roll please … land tax. Usually the domain of state governments, Henry’s review recommended a broadbased land tax to apply to family homes in return for an axing of stamp duty. Stamp duties are terrible, and would never make my fantasy tax league. Essentially a tax on transactions, stamp duties act as a barrier to people moving house. Older people rattle around in houses that are too big for them and young people can’t afford to buy. All around a bad idea. But money has to come from somewhere and a low rate of land tax that everybody paid would be a fairer way to raise revenue.

My second tax pick is something else that’s hard to avoid: consumption. You guessed it, I mean the goods and services tax. What we hate about the GST — that it’s everywhere — is also the main reason economists like it.

People have still got to eat, even if they hate the GST. So it is a relatively efficient revenue raiser — raising money without distorting behaviour. Of course, it also tends to be regressive — hitting people for whom consumption takes up a bigger share of their income (as opposed to saving) the hardest. That’s why any move to increase the GST should be used to fund income tax cuts.

Because here we come to it.

Income tax has been relied upon heavily by all Australian governments as our number one source of revenue. But Income taxes reduce the return from work and so distort behaviour by discouraging people from working. That’s the last thing we want.

It’s time for income taxes to be retired to the back bench, along with company tax.

We can’t axe income taxes and company tax from the team altogether — they are such powerful sources of revenue. But anything we can do to retire them, and bring other, less distorting, taxes into play would be a good thing.

So there you have it, my fantasy tax line up: Stamp duty is axed from the team. Income and company taxes retired to the backbenches. A new player — land tax — brought onto the field. And an existing player — the GST — brought to the fore.

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